Compliance Mechanisms under the FuelEU Maritime Regulation

As the shipping industry navigates the complexities of decarbonisation, and with FuelEU Maritime still facing delays in Norway, this article explores how flexible compliance mechanisms—such as banking, borrowing, and pooling—can support shipping companies in meeting stringent requirements.

1. Compliance Balance and Responsibility

FuelEU Maritime applies to ships above 5,000 gross tonnage carrying cargo or passengers for commercial purposes, irrespective of their flag. Under FuelEU Maritime, each ship receives a compliance balance based on its GHG intensity relative to regulatory limits:

• Positive balance = over-compliant
• Negative balance = non-compliant

Under FuelEU Maritime, the ISM company, which is the entity that is responsible for compliance of the ship with the International Safety Management Code, is the responsible entity. This contrasts with the EU ETS, where the shipowner typically bears responsibility in the absence of a specific contractual agreement. Given that reporting obligations for both FuelEU Maritime and EU ETS are facilitated through the same database, THETIS-MRV, it may be strategically beneficial for the shipowner if the ISM company assumes compliance responsibilities for both regulatory frameworks. The ISM company is entitled to transfer compliance costs associated with FuelEU Maritime to the shipowner. Subsequently, the shipowner may pass these costs onto the charterer. To streamline this process, BIMCO has developed standard contractual terms that address the allocation of compliance costs.[2]

FuelEU Maritime entered into force on 1 January 2025 and applies to ships that fall withing the scope of the regulation and which call at a port under the jurisdiction of a Member State of the EU. Norway and Iceland are currently exempt, as FuelEU Maritime has not yet been incorporated into the EEA Agreement. The timeline for incorporation remains unclear. As a result, their ports remain, for the time being, treated as third-country ports under the regulation.

2. GHG Intensity Reduction Targets

FuelEU Maritime imposes limits on the GHG intensity of energy used on ships, with targets for gradual reduction:

• 2% reduction by 2025
• 6% reduction by 2030
• 14.5% reduction by 2035
• 31% reduction by 2040
• 62% reduction by 2045
• 80% reduction by 2050

Banking

• What it is: Ships with a positive compliance balance can "bank" the surplus for future years. Banking is regulated in Article 20 of the FuelEU Maritime.
• Key rules:
• The banking must be verified and approved before the compliance certificate is issued  by the verifier[3]  (By 30 June) in accordance with article 22
• Banked surplus cannot be transferred to another ship. Only the same ship can use the banked surplus.
• No expiry — Banking can occur over one, two, or more successive years, and the banked compliance surplus does not expire.

Borrowing

• What it is: Ships with a small compliance deficit (within 2% of the limit) can "borrow" from the next year’s balance. Borrowing is regulated in Article 20 of the FuelEU Maritime.
• Key rules:
• Deficit must be within 2% of GHG limit.
• Borrowed amount must be repaid with a 10% surcharge the following year.
• Ships cannot borrow two years in a row.
• Borrowing must be verified by 30 April of the verification period.

Pooling

• What it is: Allows vessels to share their compliance balances within a group of vessels in the same shipping company or across different companies (which includes different ISM companies as well as shipowners), allowing over-performing vessels to compensate for other under-performing ones. Pooling is regulated under Article 21 of the FuelEU Maritime.

• Key rules:
• Must be registered and verified in the FuelEU Maritime database by 30 April of the verification period.
• No restriction on the number of ships that can be included in a pool. However, a ship’s compliance balance cannot be part of more than one pool within the same reporting period.
• There is no cost on companies that choose to comply through pooling - financial arrangements are left to private agreements between the companies involved.
• The overall pool has a positive compliance balance.
• Ships with a surplus do not end up with a compliance deficit after pooling.
• Ships with a compliance deficit before pooling do not have a larger deficit afterward.

It is important to note that ships participating in pooling will not be able to borrow advance compliance surpluses. Furthermore, ships that use the borrowing mechanism in a given year cannot participate in pooling during the same reporting period.

3. Summary

FuelEU Maritime offers practical flexibility through banking, borrowing, and pooling, helping shipping companies manage compliance more effectively. Nevertheless, legal and operational complexities persist. For guidance on compliance strategies or maritime legal advice, our experienced team of shipping lawyers is available to provide assistance.

[1] https://eur-lex.europa.eu/legal-content/EN/TXT/?uri=CELEX%3A32023R1805

[2] FuelEU Maritime Clause for SHIPMAN 2024

[3] A legal entity accredited by a national accreditation body under Regulation 765/2008, carrying out verification activities to assess the conformity of the documents transmitted by the company.